Output and new orders continue to expand solidly

Today sees the release of November data from the Ulster Bank Northern Ireland PMI®. The latest report – produced for Ulster Bank by IHS Markit – pointed to further solid increases in output and new orders, with rates of expansion in both slightly quicker than those recorded in October. Rising workloads led to a further accumulation of outstanding business, with companies increasing staffing levels accordingly. Meanwhile, input cost inflation accelerated to a six-month high.

“Despite Northern Ireland’s political situation and ongoing uncertainty linked to Brexit, business conditions remain encouraging. Private sector firms saw a pick-up in activity, new orders, employment and exports in November. Indeed, local firms reported faster rates of growth in job creation and orders than their UK counterparts.

“With just one month remaining, it is clear that 2017 has been a very good year for Northern Ireland’s private sector. The rates of growth in output, new orders and employment are all higher in 2017 than the previous year and represented the fastest rates of growth in three years.

“Export orders are broadly in line with 2016’s rate of expansion – which was the strongest growth rate in 12 years. However, it should be noted that the pace of export growth has slowed in each of the last four quarters. Sterling’s post-EU referendum depreciation has provided a major boost for export price competitiveness. In recent quarters, however, the pick-up in new orders growth has been due to the domestic market (UK), which outperformed the export market in recent months.

“On a more negative note, 2017 has witnessed a surge in inflationary pressures. Input cost inflation hit a six-month high in November with retailers experiencing an 80-month high. 2017’s cost pressures are the most intense that businesses have faced in six years. Pressures on margins have meant the prices charged for goods and services have been increased significantly. Output price inflation in 2017 has been the most marked in the last 15 years.

“At an industry level, all sectors have experienced faster rates of growth this year than last. Retail has been the fastest growing sector for the last two years with 2017 the strongest for sales growth in 15 years. This performance is due to the tourism boom and flattered by cross-border shopping which has benefited from sterling’s weakness. The latest survey highlights that despite booming sales, retail employment growth is broadly flat - and the weakest in almost two-and-a-half years.

“Though expanding more modestly; manufacturing, services and construction sectors have enjoyed their strongest years of growth in output since 2014. The latest survey reveals that construction firms are increasing their staffing levels at the fastest rate since at least February 2009. Service sector firms recorded the fastest rates of jobs growth in 2017 and employment growth remains strong approaching year-end. Manufacturing firms posted job gains over the year, but this has levelled off in H2.

“Overall, the Northern Ireland private sector moves into 2018 with considerable momentum, but there is also no shortage of challenges ahead; not least inflation, which will increasingly squeeze consumers; the local political deficit; and the ongoing Brexit negotiations, the more challenging phase of which lies ahead. The next 12 months will be both an interesting and critical time for the Northern Ireland economy.”